For almost three years, JR Andersen, CEO of mid-size software company Andersen High Tech (AHT), and his board have been uneasy. Business growth has been “OK” at eight percent but the market has been growing at a 15 percent annual rate. With almost half the growth from price increases, unit growth for the main product line has been less than five percent. Fortunately, margins have been expanding nicely along with management bonuses, so things aren’t too bad.
Or are they?
With business growth rates well below the market, AHT is losing customers and hence market share. At a minimum, this means lost opportunities.
Competitors are gaining enough critical mass to develop the next product faster or better. AHT’s biggest competitor has won three bids with “leading edge” requirements, leaving JR worried about his next generation product.
If you were JR and his board, where would you look to escape this predicament? My experience suggests the answer is in marketing strategy, not in technology.
To increase your company’s business growth, your new thinking and priorities should focus on:
– Finding hidden opportunities – Your potential business growth solutions are buried inside your current approach to product enhancement and development.
– Applying product discipline – You need to find and apply the right balance of technical and business factors for proactive product management.
– Discovering customer niches — You need to find specific customers with unique needs that you can serve better than others could.
Six months ago, JR started down this road. Here is his path to business growth success:
Finding the hidden portfolio gold & fixing your R&D investment black hole
AHT had a large “portfolio” of products and product enhancements in development. Like many companies I’ve seen, AHT’s pipeline had many small, incremental projects and very few truly innovative ones.
To fix his R&D problem, JR decided that he needed to divide the projects into 3 categories:
1. Major new products: Greater than 10 percent of firm revenue within three years.
2. Significant product enhancements: defined as substantial new customer functionality.
3. All other.
JR knew there were only four new products underway, counting two in the very early stages. He was surprised to find only seven significant enhancements, and even more surprised to find 73 “all other” projects.
Next, JR needed to understand the resources assigned to each category. Because there had been no central resource tracking, this step was hard for JR’s staff. They had to visit each product group and each functional organization several times before obtaining the necessary information. Everyone was surprised to discover only 20 percent of the resources assigned to major new products and another 15 percent on enhancements–with the remaining 65 percent working on “all other.”
The solution was obvious. Take resources from “all other” and add them to new product development or product enhancements. Not only did this improve confidence in launch dates, it opened a floodgate of possibilities for new products.
Applying Product Discipline
While looking at the AHT product development projects, JR first drew them out on a calendar showing launch dates. Then he asked his engineers and product managers some questions. They included:
– When are intermediate reviews scheduled and who is participating?
– Can you show me the specific customer needs that preceded the technical work?
– For existing products, do the product plans line up with corporate objectives?
– What are the skills and background of the people in product manager roles?
Like many companies, he found AHT only addressed these issues intermittently, meaning he received many answers he did not want to hear. In discussions with the vice presidents at the next staff meeting, JR and his executive management team agreed they needed to personally apply more consistent attention and focus.
Discovering Niches and Segments
Next, JR dug into the product plan for AHT’s product with the largest growth objective. He found the sales target, marketing communications plan, and the planned product enhancements. But the assessment of competitors was weak. Worse, the description of target customers and applications was missing. In other words, no description of why a customer would buy AHT’s product or which customers should be interested.
I’ve seen this pattern at many companies. The value proposition is missing or too broad, without real and specific customer benefits. Crafting a great value proposition includes becoming very specific about benefits in terms that affect the customer’s bottom line.
JR quickly realized that the most productive place to look for revenue growth was in incremental uses and new customers for AHT’s three key existing products. He asked his marketing, sales, engineering and customer service leaders to carefully understand and document each benefit received by current customers, then identify other similar customers.
Business Growth’s Bottom Line
After six months of focus, JR and his board are feeling better. Revenue growth for the last quarter was 17 percent and the most recent product launch was on time. The whole company now has a positive outlook and people are buzzing with energy. It took two new product managers and a lot of executive attention, but the customer niche/value proposition concept has really taken hold. The VP of sales even became a believer when he landed an elusive key account after a presentation of AHT key product benefits (rather than their technical capabilities)